Malaysia’s sovereign wealth fund, Khazanah Nasional, is setting up its first two offices outside Asia – in Turkey's Istanbul and San Francisco in the US – as it moves to expand its foreign portfolio.
The $40 billion fund, which has branches in Beijing and Mumbai as well as Kuala Lumpur, has been building its exposure in emerging markets. It already has interests in Turkey, a country widely viewed as offering strong investment potential, despite recent political turmoil.
And the US west coast office is likely to be Khazanah’s base for investing in the country’s IT and technology sector, say sources – Silicon Valley lies on the south edge of San Francisco Bay.
The fund already appears to have staff on the ground in Turkey. There is an office address in Istanbul listed online for the fund, and Zafer Sonmez is listed on LinkedIn as senior vice president of investments in the city. According to the entry, he has been with Khazanah for a year in that role, initially in Kuala Lumpur. Before that, he worked in Turkey at banks including RBS and ABN Amro.
Khazanah declined to comment for this article.
The fund in late July agreed to buy 90% of Turkey’s second-biggest health insurer for $252 million in cash from Turkey’s Aydinlar family and private equity firm Abraaj Group. The purchase of Acibadem Saglik ve Hayat Sigorta is pending regulatory approval in Malaysia and Turkey, and would be the biggest investment in a Turkish financial institution by a Southeast Asian organisation.
The acquisition “allows us to tap into the attractive growth opportunities offered by the Turkish insurance market”, says Azman Mokhtar, a Khazanah managing director. The fund’s hospital platform, IHH Healthcare, also owns Turkey’s largest hospital chain, Acibadem Healthcare.
Despite Turkey’s recent disturbances and upheaval, Khazanah, an experienced player in direct private investments, is not alone in eyeing the country. Singapore state investor Temasek sent a 45-strong delegation to Istanbul in early June to scope out assets, say sources. And BNP Paribas Investment Partners’ Turkish business cites growing interest from Japanese investors, among others.
China is also on Khazanah’s radar: the fund holds a $250 million qualified foreign institutional investor (QFII) quota that it received in April last year.
Raising offshore exposure has been a trend among Asian institutional investors in recent years as they look to diversify beyond their home assets. This is a particularly pressing issue for big Malaysian state institutions, given their relatively small domestic capital markets and fast-growing pool of sovereign capital.
Khazanah has leapt to $40 billion from $34 billion as of the end of 2011, the Employees Provident Fund grew 9% to $173 billion in the year to March 2013, and $30 billion state pension KWAP expanded 9% to $29.3 billion in the same period.
Sovereign investors across Asia have been steadily moving to beef up their overseas presence and exposure. Notable examples include China’s State Administration of Foreign Exchange opening an office in New York earlier this year; Korea’s National Pension Service considering adding Hong Kong and Shanghai branches to those in London and New York; and Temasek eyeing its first US presence.
State investors tend to set up foreign branches with an eye on direct private investments rather than allocating to public markets, notes the head of institutional sales for Asia at a large fund house.